Question

List and explain the four determinants of supply.

Answer 1

Determinants of supply

1) price of good : being other things constant , if the price of good increases it's supply also increases . Supply of good with depend on price of good . As the price of a good increases the company will be ready to supply more goods at higher price because higher price will hep them to earn higher profits .

2) price of relative good .: When price of related good rises supply of other good falls and supply of related good rises . For eg wheat and barley . When price of barley increases the supply of barley will increase as it is more profitable for the firm due to high price and supply of wheat may decline due to less profit as compared to barley.

3) state of technology : technology affects the supply of good .when new and higher technology is used it helps in decrease of cost of production which ultimately increases the profit margin .so better technology and upgradation of technology will help in increase of supply of good as profit increases due to decline in cost of production.

4) cost of input : when cost of input rises for example labour or land or machinery , it will increase overall cost of production which will decrease profit margin of producer . This reduce in profit will force the producer to shift to different line or to decrease the supply in the market .